Sims extracts earnings gold from scrap

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Sims Group shareholders can expect a big lift in dividends this
year after the company revealed a massive first-quarter profit and
analysts predicted more of the same for the full year.

Investors scrambled for Sims shares - not for the first time
this year - sending the price soaring 3.3 per cent to a new peak of
$14.82 by the close and recouping Wednesday's losses.

Earnings in the first quarter rocketed to $57.1 million, a new
quarterly record. "We are confident . . . that first-half earnings
will exceed $100 million," chief executive Jeremy Sutcliffe said.
Sims made $113 million in the whole of 2003-04.

Mr Sutcliffe was unwilling to look beyond the quarter, but
brokers were not. JPMorgan predicted that earnings could reach $219
million for the full year while, at the low end, CS First Boston
predicted "only" $183 million. Mr Sutcliffe stopped short of
endorsing the forecasts, but pointed out that even the low figure
represented earnings "not far short of $2 a share".

Sims has no target payout ratio, but distributions have been
pitched around the 60-65 per cent range recently, indicating that
total dividends could climb from 86 ¢ to around $1.20 this
financial year.

Mr Sutcliffe said the huge acceleration in earnings was the
result of a number of factors.

"This quarter was better than the previous two as we had three
bumper months in a row this time," he said. "We've been able to
hold on to margin and we have had stronger than budgeted volume.
It's a nice cocktail."

He said Sims had been able to maintain margins because prices
had been volatile. "Given the ever-present risk of prices coming
off, there is no sense in . . . securing more volume at the expense
of margins in case it goes pear-shaped."

Mr Sutcliffe also said China was now less influential in setting
steel and scrap prices. "Long-product steel prices in China are not
at a level which will drive scrap prices up. I think $US200 ($A272)
a tonne scrap prices are sustainable," he said.

"We have great demand coming out of Korea, Thailand and Malaysia
so, if China takes a bit of a breather - which I think it will - it
won't lead to the decline in ferrous scrap prices we saw six months
ago."